The shipping company raised the GRI to cause panic, and the freight rate will fall
Container lines are taking advantage of this round of freight rate increases (GRI) to force up Asia-US spot freight rates, but given weak demand, the industry is generally skeptical about the sustainable growth of freight rates. Carriers rolled out one round of the GRI on April 15 and plan to implement the next round on May 1. But Linerlytica reported on Monday that carriers had postponed the May 1 GRI until mid-May because volumes could not support the surcharge hike.
Double-digit growth in US East and West US freight rates
Last week, Drewry’s World Container Composite Index (WCI) rose 4%, its first gain in 15 weeks. There are signs of a rebound in routes from China to Northern Europe, the US West, and the US East. Both the US East and the US West freight rates have achieved double-digit growth, while the Northern European and Mediterranean routes have remained flat and slightly increased. The latest Baltic Freight Index FBX US West shipping freight soared 71%, and US East rose 16%. Xeneta’s XSI freight index rose 38.51% in West America and 7.20% in East America.
Furthermore, the Shanghai Containerized Freight Index (SCFI) has started to show cracks. According to the latest data released by the Shanghai Aviation Exchange on April 21, the SCFI index continued to rise by 3.42 points to 1037.07 points last week, an increase of 0.33%. However, the freight rates of the US-West and US-East routes dropped again.
Linerlytica said that as soon as transpacific freight rates rebounded, carriers began to cut prices again, a pattern that is likely to repeat itself in the coming months. According to analyst Andrew Lee, GRI is not sustainable. He expects the GRI to only be partially sustained, with dividends on some routes being eroded in the coming weeks. In its weekly freight rate report, Platts said many market participants doubted that the increase would continue into the month due to lower consumer demand and weaker economic sentiment.
Recently, Drewry, a shipping consulting company, said that the recent increase in container spot freight rates was temporary. The company still did not believe that freight rates had bottomed out and expected shipping companies to make losses. Simon Heaney, senior manager at Drewry, said: “I think the shipping lines have done a pretty good job of intimidating shippers, and if the GRI hike doesn’t succeed, or at least partially succeed, more capacity cuts will ensue. Indeed, some UK shippers have heard from carrier representatives over the past few weeks that rates will rise further on the Asia-North Europe tradeline, and there have been delays.
Simon Heaney said that in terms of demand, consumer spending in Europe and North America appeared to be largely constrained this year, weighed down by high inflation and rising interest rates. He explained that other regions will have different adjustment schedules in their respective cycles. He did say that despite the current lackluster data, he expects volumes to pick up in the traditional late-summer peak season, but the market looks pretty soft today compared to this time last year.
The analyst predicts that the impact on shipping companies’ profits from plunging freight rates will be significant. After posting record profits over the past two years, Drewry expects the liner industry to post $16.5 billion in earnings before interest and taxes this year as a slew of lucrative contracts come to an end. However, for 2024, it has modeled cumulative losses for airlines, which are expected to reach $10 million.
